Investing in the Nasdaq: A Strong ETF Option for the New Year

When investors talk about the Nasdaq, they usually mean a few specific things. One common reference is the Nasdaq Composite, which is one of the three main stock market indexes in the U.S. This index includes nearly all the stocks traded on the Nasdaq stock exchange.

Another reference could be the Nasdaq-100. This index is a narrower version of the Composite, tracking the 100 largest non-financial companies listed in the Nasdaq index.

Choosing between these two indexes depends on personal investment goals. The Nasdaq Composite offers greater diversity, featuring over 2,500 companies, while the Nasdaq-100 focuses on the largest players.

As we approach the new year, a solid choice for investors looking to tap into the Nasdaq-100 is the Invesco QQQ Trust (QQQ). This ETF is one of the most well-known in the stock market and has shown impressive returns over the years.

Growth Opportunities in Key Holdings

The Invesco QQQ Trust is designed to be market-cap-weighted. This means that larger companies hold more influence within the fund than smaller ones. Consequently, a few major tech companies primarily drive its performance. Here are the top 10 holdings of the ETF:

Company	Percentage of the ETF
Apple	8.96%
Nvidia	7.88%
Microsoft	7.83%
Amazon	5.62%
Meta Platforms	5.12%
Broadcom	4.89%
Tesla	4.61%
Costco Wholesale	2.70%
Alphabet (Class A)	2.58%
Alphabet (Class C)	2.48%

Data source: Invesco. Percentages as of Dec. 10.

These ten companies make up over 52% of the ETF's total assets, which means it's not the most diversified fund. Nevertheless, these leading companies present strong growth prospects heading into 2025 and beyond. Key trends such as artificial intelligence (AI), cloud computing, and electric vehicles (EV) are driving this growth.

While AI isn't a standalone industry, it has the potential to reshape many sectors. Companies like those listed above are at the forefront of providing the necessary technology, from graphics processing units (GPUs) to data centers.

In addition, cloud computing continues to grow, with major players like Amazon, Microsoft, and Alphabet holding significant market shares of 31%, 20%, and 11%, respectively.

The global electric vehicle market, worth over $500 billion in 2023, is projected to grow to nearly $1.9 trillion by 2032, boasting a compound annual growth rate of around 14%. Though only Tesla is ranked in the top ten, it depends on a network of suppliers for its components.

A Track Record of Superior Performance

Since its launch in March 1999, the Invesco QQQ Trust has seen remarkable performance. Over the past 25 years, it has returned more than 930% and averaged annual returns of approximately 9.5%, both exceeding those of the S&P 500 index. Essentially, an investment of $1,000 in the ETF would have grown to over $10,300 today.

While historical performance does not guarantee future results, it’s encouraging that this ETF has weathered significant market downturns, including the dot-com bubble, the Great Recession, and the COVID-19 pandemic.

Moreover, investors can benefit from low costs; the ETF's expense ratio is 0.2%. This means an annual fee of only $2 for every $1,000 invested. Though not as low as some other options, it remains quite reasonable.

While cost may not always be the top consideration when selecting an ETF, even small differences can accumulate considerably over time. The Invesco QQQ Trust represents not only a solid investment option but also comes with proven performance and significant growth prospects for its main holdings.

John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, and Randi Zuckerberg, a former director at Facebook, are part of The Motley Fool’s board of directors. The Motley Fool recommends several companies, including Amazon, Apple, and Microsoft.

Investing, Nasdaq, ETF